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Life Health > Life Insurance

Regulators Forge Ahead With AG 38 Draft

By Jim Connolly

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Regulators have voted to continue work on an actuarial guideline that discusses how insurers should reserve for universal life products with secondary guarantees.[@@]

Regulators who belong to the Life & Health Actuarial Task Force voted 11-3 against a motion that called for the task force to stop work on Actuarial Guideline 38 and pursue a reserving solution that would involve asset adequacy testing.

The vote took place here at the spring meeting of the National Association of Insurance Commissioners, Kansas City, Mo.

Retiring Arkansas Deputy Commissioner John Hartnedy called for the motion. He had support from commissioners from Nebraska and North Dakota.

The LHATF’s parent committee, the Life “A” Committee, has been encouraging the LHATF to come up with a reserving proposal based on new types of statistical analysis of asset adequacy rather than on static formulas.

During the winter NAIC meeting in December 2004, commissioners on the “A” committee responding to concern from many insurers instructed LHATF to revisit the issue.

Nebraska Director Tim Wagoner and North Dakota Insurance Commissioner Jim Poolman were among the commissioners who questioned LHATF’s decision to pursue AG 38 in spite of fierce opposition by a large number of companies.

The charge from the “A” Committee urged LHATF members to focus their energies on a long-term solution but did not specifically prohibit them from continuing to work on AG 38.

Hartnedy asked how regulators at LHATF could ignore a directive from LHATF’s parent committee.

In response, Mike Batte, a New Mexico regulator, said LHATF is a venue for his commissioner and other commissioners on the task force to weigh in on issues such as the UL reserving issue.

New Mexico Insurance Superintendent Eric Serna and other commissioners on the LHATF have the right to weigh in on an issue, Batte added.

In related news, regulators decided to make changes to the AG 38 draft that would keep regulators from applying any new requirements retroactively.

Instead, the new draft would leave existing requirements in place for contracts issued between 2003 and July 1, 2005, and it would have separate language reflecting proposed changes for contracts issued after July 1, 2005. Because the changes to the draft will require a new exposure period, LHATF members voted to change the effective date to Jan. 1, 2006, from July 1, 2005.

In addition, it was decided to hold a conference call to discuss other possible reserving changes, including an asset adequacy approach being offered by Scott Harrison. Harrison represents life insurers who say implementation of AG 38 would create a burdensome and unnecessary reserving requirement. The call will look at many options for life product reserving requirements.

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